Is DBS Creating A Second Class of Americans?
By Jimmy Schaeffler, The
Carmel Group
Year after year, analysts and
businesses step back and admire the huge potential of America’s multiple
dwelling unit (MDU) market place. They are typically also impressed with the
potential for broadband to access those MDUs. Under a “hot”
scenario, according to the chart below, The Carmel Group projects a potential
of five million net new Direct Broadcast Satellite (DBS) subscribers as of
year-end 2005 and corresponding net revenue of $3.5 billion.
The problem here is that this
revenue and sub number growth is tied to a “hot” set of
assumptions, which is to say, “This is what happens if everything works
well for DBS in the MDU marketplace during the next few years.” And the
next problem is that things probably will not work real well for DBS in the U.S. MDU marketplace.
Carried one step further,
what does that really mean to MDU America?
If DBS does not actively
deploy its basic services –
to say nothing of actively deploying its broadband services – then several things will happen.
First, cable’s incumbent private cable operators (PCOs) and multiple
system operators (MSOs) will have little competitive incentive to offer their
MDU subscribers the best in digital broadband information and entertainment.
More importantly, a whole new cutting edge of broadband services, mostly being
driven by DBS operators like EchoStar and DirecTV, will not enter the homes of
America’s MDU inhabitants. A lesser access to education, entertainment,
and access to information will create a second class of MDU citizens. Nor will
items like personal video recorders, large hard drives built into set-top
boxes, streaming video (and dozens and dozens of other hardware and software
developments) make it rapidly into most of the homes of some 25 million MDU
subscribers.
That said, leaving aside the
hype in the nation’s capital these days about how 30 million rural
Americans will represent the new Digital Divide, the real new Digital Divide
will first and foremost infect MDU America. In fact, the so-called Digital
Divide will not hamper those in rural America, because they’ll have solid
access to satellite-delivered services. Rather, the Digital Divide will plague
a quarter of our population today who reside in condominiums, apartments,
dormitories and other groupings of many homes in a single building, and cannot
access broadband services.
During a recent public
statement by EchoStar’s Chairman & CEO, Charlie Ergen, a rather dour
state of DBS in MDU America was portrayed. Ergen realistically highlighted the
U.S. DBS industry’s reasons for avoiding a mass MDU deployment, i.e., 1)
the lower revenue/subscriber/month, 2) the higher churn, 3) the extra splitting
of revenue streams, and 4) the higher programming costs. Moreover, there is
little reason to believe that these measurements are not equally applicable to
EchoStar rival, DirecTV.
So where to from here? Until
recently, the U.S. DBS industry has focused on the relatively
“low-hanging fruit” of America’s single family dwelling
units. The reasons are that these buildings and their occupants typically do
not offer the MDU challenges mentioned above. Nonetheless, not too many years
from today, as the competition in the single family dwelling arena heats up and
single family dwelling customers get harder to buy, chances are good that the
U.S. DBS system operators (and their vendors) will rediscover the 60 million
people (and their pent-up demand for telecom and media services) that make up
today’s U.S. MDU market place. That many people (and that much money)
cannot just continue to be overlooked when so many common sense synergies exist
between the satellite server and the MDU served.
With renewed focus and
energies, DBS will find novel ways to maximize revenues and perhaps even live
with longer returns on investment, in order to at least attract the higher end
and more stable MDU occupants.
Not too far from today,
DirecTV will be part of a new company, which will put renewed pressure on
EchoStar to ally with a strong telecom provider that can help it compete with
the new DirecTV. With new backing, both financial and strategic, these
companies will have another chance to find the Holy Grail that is satellite TV
delivered to multiple dwelling units (not just here, but in the hundreds of
millions of MDUs that cover the globe).
Let’s just hope these
players recognize and take the chance. Otherwise, living in an MDU might well
become the equivalent of living in a Telecom America, circa 1994, rather than a
Telecom America, circa the 21st century. More importantly,
otherwise, living in MDU America might well become the equivalent of second or
third class citizenry for a huge cross section of the nation’s poor,
young, immigrants and other key demographic groups that make up such a large
part of today’s MDU landscape.